With the economy still shaky and the 2012 elections still to get through, contractors can expect the uncertainty about the flow of spending to continue until at least 2013.
In an effort to accelerate growth in the future, some companies in the IT and professional services market are increasing their investments in this difficult period at the expense of earnings, writes Bill Loomis of Stifel Nicolaus.
Federal IT services firms are optimistic about business later in the year as contract award activity improves in areas such as cybersecurity, health IT and C4ISR.
After two years of outperforming the broader stock market, federal information technology and professional services company stocks underperformed in 2009.
Even though the trends for federal information technology and professional services firms look solid during the next few years, government spending pressures and the trend toward insourcing are giving investors reason to worry.
The fiscal 2010 information technology budget request and the 60-day cybersecurity review reveal how the Obama administration regards information technology as a key factor in moving its agenda forward.
Areas for potential growth exist in the federal information technology and professional services sector despite a recent slowing of contract award activity.
Despite facing tighter budgets, tougher competition, and heavier oversight and regulation burdens, the federal IT and professional services industry is a relatively bright spot on Wall Street.
Federal IT and professional services stocks have been outperforming the broader stock market because investors are attracted to the relative stability of the industry.
Federal IT and professional services stocks have rallied over the past couple of months due to good second-quarter earnings reports and investors seeking less economically sensitive investments. And the federal IT group has almost broken even for the year.
With the changes in Congress and the presidency, and a tougher budget environment ahead, companies will have to be even more flexible and agile to maintain growth during the coming years.
